Nordic Countries Lead the Way in Competitiveness Rankings, U.S. Remains Second

Oct 14th 2004

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Finland remains the most competitive economy in the world and tops the rankings for the second consecutive year in The Global Competitiveness Report 2004-2005, released today by the World Economic Forum.

The United States is in second position, followed by Sweden, Taiwan, Denmark and Norway, consecutively.

“The Nordic countries are characterized by excellent macroeconomic management overall – they are all running budget surpluses – they have extremely low levels of corruption, with their firms operating in a legal environment in which there is widespread respect for contracts and the rule of law, and their private sectors are on the forefront of technological innovation. These countries prove the point that enhanced competitiveness and boosting the capacity of economies to operate effectively in the global economy is a multifaceted challenge requiring concerted actions on a number of fronts,” said Augusto Lopez-Claros, Chief Economist and Director of the World Economic Forum’s Global Competitiveness Program.

The rankings are drawn from the results of the Executive Opinion Survey, a comprehensive survey conducted by the World Economic Forum, which this year polled over 8,700 business leaders in 104 economies worldwide. The survey questionnaire is designed to capture a broad range of factors affecting an economy’s business environment that are key determinants of sustained economic growth. Particular attention is placed on elements of the macroeconomic environment, the quality of public institutions which underpin the development process, and the level of technological readiness and innovation.

“Over the last several years the World Economic Forum’s Growth Competitiveness Index has been a useful tool in thinking about key macroeconomic and institutional elements, critical to the growth process. The present rankings continue to provide policy-makers, businesses and organizations of civil society with valuable insights into areas where further progress is called for, in order to improve the environment for private sector economic activity, and generate sustainable growth,” said Lopez-Claros.

Highlights

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Finland is number one in the Growth Competitiveness Index (GCI) rankings and holds this position for the third time in the last four years. The country is very well managed at the macroeconomic level, but it also scores very high in those measures that assess the quality of its public institutions. Furthermore, the private sector shows a high proclivity for adopting new technologies and nurturing a culture of innovation. The United States, as last year, is ranked second: overall technological supremacy is partly offset by a weaker performance in those areas that capture the quality of its public institutions and the stability of the macroeconomic environment.

The Nordic countries continue to hold prominent positions in the rankings among the top ten most competitive economies this year, with Finland (1), Sweden (3), Denmark (5), Norway (6) and Iceland (10) all in privileged places. The largest improvement among these countries is posted by Norway with a move up from 9th to 6th place this year.

Elsewhere in Europe the most notable developments are: the sharp improvement in the relative position of the United Kingdom, which has moved up 4 places to 11 in the overall rankings; the stellar performance of Estonia (20), which is by a significant margin the most competitive economy among the 10 countries that joined the EU in May of this year; and the continued decline of Italy (47, compared to 26 in 2001), which now has the lowest rank among the EU-15 and a lower rank than many of the accession countries. Italy’s worsening performance affects all areas, with particularly sharp drops in the area of quality of public institutions (e.g., judicial independence, favoritism in public sector decision-making and the business costs of crime).

Japan (9) has continued to scale positions (21 in 2001) and this year has crossed the top ten threshold. Its improved position reflects a combination of factors, including the strong economic recovery under way which has boosted business confidence, and notable improvements in various indicators which assess the transparency of public sector institutions.

China (46), broadly unchanged with respect to last year (44), continues to have a mixed performance. A stable macroeconomic environment, reflecting the strength of economic activity and the absence of major macroeconomic imbalances, is offset by weak institutional underpinnings in such areas as the soundness of the banking sector, the extent of administrative controls and red tape, and poor auditing and accounting standards.

Elsewhere in Asia, Taiwan (4) and Singapore (7) continue to lead the region in a complementary way. Taiwan has an unusually high rank in the area of technology (2) – second only to the Unites States – whereas Singapore has the number 1 rank in terms of the quality of its macroeconomic environment, a position it has held for several years in a row in a commanding fashion.

With very rare exceptions, the economies in Latin America exhibit worsening levels of competitiveness in 2004. The Andean economies are especially noteworthy, with all showing a drop in ranks, in some cases of precipitous proportions (Peru and Bolivia, dropping by 10 and 13 places respectively). Where some improvements are visible, such as in Argentina (74), the levels mainly reflect a bounce with respect to the very depressed levels of the previous year, linked to the collapse of the currency and the country’s financial system. Policy instability, inefficient bureaucracies and corruption emerge as the most problematic factors for doing business in Latin America.

While a large number of countries in sub-Saharan Africa hold positions in the lower half of the rankings, South Africa (41) leads the region in the global rankings, showing an overall improvement on last year’s performance. More significantly, South Africa’s rank is higher than the rank of every country in Latin America, except for Chile (see below). At the other end, Zimbabwe (99), already low last year, falls even further. It has the lowest rankings among the 104 countries covered on inflation performance, credit ratings, the soundness of the banking system, the costs of its agricultural policies, brain drain and freedom of the press, among others. A sad case overall of the development process having gone sharply awry.

Chile (22) has not only sharply improved its position with respect to 2003, but it continues to be the most competitive economy in Latin America, with a staggering 26 places between it and Mexico (48), which is the next highest ranked country in the region. A detailed case study on Chile is included in this year’s Global Competitiveness Report.

“The Global Competitiveness Report – now in its 25th year of publication – has become a primary source of information on the strengths and weaknesses of over 100 economies, accounting for the bulk of global GNP. It is an invaluable reference guide for business leaders and policy-makers, as they endeavor to cooperate to create an environment which is more supportive of private sector economic activity. Increasingly, through insightful essays on various aspects of the economic agenda for improved reform and competitiveness, the Report is also making an important intellectual contribution to addressing some of the most intractable problems we face as we attempt to improve the state of the world,” noted Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.

The World Economic Forum continues to expand geographic coverage of The Global Competitiveness Report, currently featuring a total of 104 economies, of which the new entrants this year include Bahrain, Bosnia and Herzegovina, Cyprus, Georgia and the United Arab Emirates, making this Report the most comprehensive of its type.

Co-Directors of The Global Competitiveness Report are Klaus Schwab, Executive Chairman of the World Economic Forum, and Michael E. Porter, Bishop William Lawrence Professor at Harvard Business School, Harvard University. Professor Porter presents the results of the Business Competitiveness Index (BCI), an especially useful complement to the GCI, with its emphasis on a range of company-specific factors conducive to improved efficiency and productivity at the micro level, such as the sophistication of the operating practices and strategies of companies, and the quality of the microeconomic business environment in which a nation’s companies compete. Results of the BCI rankings are fully reported in the Executive Summary and available online at www.weforum.org/gcr

This year’s Report contains a number of studies that address different aspects of competitiveness and, more generally, themes which emanate from the World Economic Forum’s deep concern with growth and development. Of particular note are Professor Xavier Sala-i-Martin’s contribution on the development of more comprehensive competitiveness indicators, bringing in key factors not previously considered in the Forum’s recent competitiveness work; Dr Daniel Kaufmann’s study on governance and corruption in high-income countries; Dr Peter Heller’s paper examining the long-term fiscal implications of population aging, climate change and globalization; Professor William Easterly’s look at the issue of why foreign aid has not been more successful in boosting the competitiveness of poor countries; Dr Arthur Dahl’s interesting use of the Forum’s Survey to cast light on the issue of why environmental responsibility makes good business sense; and Dr Stefan Tangermann’s analysis of the glaring inefficiencies associated with the subsidization of agriculture in OECD countries and the needed reforms, among others.

The Report contains a detailed country profile for each of the 104 economies featured in the study, providing a comprehensive summary of the overall position in the Index rankings as well as a guide to what are considered to be the most prominent competitive advantages and competitive disadvantages of each. Also included is an extensive section of data tables with global rankings on over 100 indicators.

Should you require country profiles or specific information, please contact [email protected]